Magellan to buy 29pc stake in quant fund Vinva for $138.5m

Andrew Formica is putting his mark on Magellan with his Vinva deal, declaring its investment bank Barrenjoey is ‘nailing it’ as Hamish McLennan moves on.

Magellan chairman Andrew Formica at their offices in Sydney. Picture: Britta Campion/The Australian

Talk about power moves.

Magellan Financial chair Andrew Formica has cemented his control of the fund manager with a number of key announcements on Thursday, including the purchase of 29.5 per cent of quantitative investor Vinva Holdings for $138.5m and the departure of deputy chairman Hamish McLennan.

Mr Formica was appointed to the board of Magellan just 12 months ago to arrest the shocking decline of the fund manager, which lost about a third of its $100bn in funds under management over three years.

His moves seem to be working.

Magellan shares rose as much as 9 per cent on Thursday on news that group earnings rose slightly last year, its seed investment in Barrenjoey had turned to profit, and the earnings potential from its Vinva acquisition.

Mr Formica will take a board seat at Vinva as part of the deal, a purchase he said “wouldn’t have been able to be done 18 months ago” because of the “uncertainty” about where the funds giant was heading following the shock departure of co-founder Hamish Douglass.

Vinva has about $22bn funds under management and was founded by Morry Waked, whom Mr Formica has known since their university days more than 30 years ago.

“The fact that he would work with us is a testament to his views of the Magellan brand, not just here, but also abroad because we have a global distribution agreement. It’s a massive endorsement for us. We see it as a significant milestone in the business.”

Quant funds largely use algorithms to make investment decisions rather than research on individual businesses. Vinva’s clients are mostly Australian superannuation funds.

Magellan expects the deal will have a “negligible impact” on this year’s profit and be earnings accretive from next year.

However, some in the market questioned what appeared to be a valuation based on a multiple in the “mid-teens”, which Mr Formica would not elaborate on during Thursday’s analyst call.

“It seems to be reasonably full priced,” agreed Gabriel Radzminski from Sandon Capital, which owns Magellan shares.

“Why make acquisitions if you’re going to be paying a high price for them?”

Mr Radzminski said Magellan’s results were “fantastic on an operational basis” but he was “disappointed” it deferred any decisions on capital management for another six months.

The Vinva purchase will deplete Magellan’s cash reserves by almost half, to $184m.

One of the biggest upside surprises was the performance of Barrenjoey, which Magellan owns 36 per cent of.

The fledgling investment bank started by several former UBS star-bankers four years ago had its carrying value in the Magellan books upgraded by 10 per cent to $136m and was the driver for Magellan’s associate businesses moving from a $12m loss in 2023 to an after tax $10m profit in 2024.

Mr Formica described the rapid move to profitability at Barrenjoey as “outstanding”, as was its intention to start paying a dividend. “All their business lines are firing,” he said. “The market conditions in investment banking have not been the best, but these guys are absolutely nailing it.

“They are so well regarded in every one of their business lines. What they’ve created in just four years is such an Australian success story. It’s outstanding.”

The Barrenjoey result contributed to Magellan announcing a 2 per cent increase in annual adjusted profit after tax to $177.9m for the full year 2024. Performance fees rose 67 per cent to $19.2m and group adjusted expenses fell 16 per cent to $106.9m.

“The performance of the key strategies have done well,” Mr Formica said. “The uncertainty that was swirling around Magellan 18 months ago just isn’t there.

“Clients were hearing about us through the press for things that didn’t matter for their portfolio.

“Now, they’re hearing about us or from us about the things that matter to them ... their portfolios.”

One year in, it’s clear Mr Formica has done much to address the company’s slide. He got rid of the incumbent chief executive David George and replaced him with Sophia Rahmani, who has industry experience.

He also extinguished debts incurred by key staff to buy now-underwater stock options, and converted units in the $2bn-plus closed-end fund – the Magellan Global Fund – into an open-ended exchange-traded product.

Mr Formica has also announced Mr McLennan will step down from the Magellan board, but will remain on the board of Magellan Asset Management.

Magellan has declared a final dividend of 28.6c a share, plus a performance fee dividend of 7.1c a share. The company will continue its share buyback.

Originally published as Magellan to buy 29pc stake in quant fund Vinva for $138.5m